22 December 2010

Has AGOA Failed?

Except it wasn’t such a great deal, according to a paper by economists Lawrence Edwards of the University of Cape Town and Robert Lawrence of Harvard University published by the National Bureau of Economic Research. While the trade deal did boost jobs for poor, landlocked Lesotho, for instance, it didn’t spur broader development. Ironically, the fabric provision — meant to give an extra boost to impoverished African nations — actually hindered them from building a domestic industry. Generosity backfired.

“The slogan of ‘trade not aid,’ can be misleading,” the economists conclude. “Trade preferences may help create the conditions for growth, but they are not sufficient.”

On the positive side, the trade deal provided about 50,000 jobs, mostly for Lesotho women. But the fabric provision meant that the largely Asian manufacturers imported relatively costly material from Asia and used Lesotho simply for cheap labor — and tariff-free entry into the U.S.